FED TO RAISE RATES

Anti-inflation move

The Federal Reserve signaled a hawkish pivot amid skyrocketing inflation, with officials saying they may raise interest rates at least three times next year.

The Fed said Wednesday it plans to end its pandemic-era bond purchases in March, paving the way for three potential interest rate increases of a quarter-point in 2022, raising them from their current levels near zero.

That’s a sharp about-face from September, when about half of Fed officials believed rate increases wouldn’t be necessary until 2023. The stimulus slowdown is coming “in light of inflation developments and the further improvement in the labor market,” said the central bank led by Chairman Jerome Powell (inset).

The move under Powell comes as the Fed faces increasing political pressure due to skyrocketing inflation.

Still, the Fed might not carry out its plans to tamp down inflation by raising rates: Its next moves will likely depend on the coronavirus Omicron variant, which has raised questions about the ongoing economic recovery.

“The Omicron variant is a wild card for both Fed policy and the overall economy,” said Bankrate chief financial analyst Greg McBride. “Until there is greater clarity about transmissibility and possible economic fallout, the Fed has left themselves room to reverse course should it become necessary.”

Nonetheless, McBride said Wednesday’s Fed statement definitely had “a more hawkish tone” than previous statements.

Following a morning of jitters, markets surged on the news. Although easy money has provided the juice that has fed much of the stock market’s rise, investors seemed soothed that the Fed would hit the brakes when it comes to inflation that has surged to a 39-year high.

The Dow Jones Industrial Average closed up 383 points (1.08 percent) on the day, while the S&P 500 index jumped by more than 1.6 percent.

In new economic projections released by the Fed Wednesday following its twoday policy meeting, officials forecast that inflation would run at 2.6 percent in 2022, compared to the 2.2 percent projected as of September. They also predicted the unemployment rate would fall to 3.5 percent from the current 4.2 percent.

The Fed added that any rate hikes in 2022 would hinge solely on the path of the job market.